Metals X Marks The Spot

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Capitalised at $438.7 million, Metals X has three producing assets: a half-share in the Renison Tin Mine in Tasmania, and the fully owned gold operations at South Kalgoorlie and Higginsville in Western Australia.

The diversified junior miner might be a rare species in these days of single-commodity focus, but Metals X Limited (MLX) did not get the memo. The Perth-based miner produces gold and tin – it is Australia’s only tin producer, and one of the very few listed tin producers – and plans to move into nickel when the Ni price improves.

Capitalised at $438.7 million, has three producing assets: a half-share in the Renison Tin Mine in Tasmania, and the fully owned gold operations at South Kalgoorlie and Higginsville in Western Australia. The Renison Mine has been operating since 2008, while South Kalgoorlie and Higginsville came to MLX late last year when it bought Alacer Gold's Australian arm for $40 million. Metals X also has two gold development-ready projects, namely the Central Murchison gold project in Western Australia and the Rover gold/copper project in the Northern Territory. Of these, the Central Murchison project is the development priority: it has the potential to produce up to 130,000 ounces a year, with a mine life of more than ten years.

The company also owns the world-class Wingellina nickel-cobalt deposit in the Central Musgrave ranges in Western Australia, which hosts a resource of more than 1.8 million tonnes of contained nickel and 139,000 tonnes of contained cobalt. MLX says Wingellina is one of largest undeveloped nickel projects in world, and one of the last that is 100% owned by a junior miner.

In June, MLX added to its gold assets with the $9.4 million purchase of the mothballed Meekatharra gold project from the struggling Reed Resources Limited, which had put the operation in the hands of administrators in August 2013, owing more than $90 million. The Meekatharra orebody was historically mined underground, but more recently open-pit mining has exploited the shallow resources.

Metals X picked up a gold resource of 3.5 million ounces at Meekatharra, along with a mill capable of processing up to 3 million tonnes of ore a year. The Meekatharra ounces increase the mineral resource at the Central Murchison gold project to 8.5 million ounces, which MLX hopes will enable the project into production in 2015. The company says it effectively paid just over $2 per ounce for the resource with all the plant and infrastructure in place, which it describes as “astounding value” when compared with the $117 million in capital expenditure it would require to build a new plant for its own ore.

At Wingellina, the feasibility study completed by Metals X in 2008 estimated a minimum 40-year mine life at an average annual production rate of 40,000 tonnes of nickel and 3,000 tonnes of cobalt at a production cost estimate of US$3.34 a pound after cobalt credits. The capital cost estimate for the project was $2.3 billion. X shelved work on a definitive feasibility study of the remote project in June last year because of weak market conditions and low commodity prices.

At the time, nickel was trading at about US$6.10 a pound, down from $8 at the start of 2013 and 12 a pound in mid-2011. Nickel has recovered in price, from just over US$6 a pound at the start of the year to levels around $8.60, but it is highly volatile. Indonesia, the world’s largest producer of the metal, banned nickel exports in January, seeking to establish value-added processing, with Chinese investment. With a new Indonesian government just elected, the market is unsure if the export ban will stay.

For the most recent quarter reported, to March 31 2014, MLX produced 48,349 ounces of gold, at a total cash cost of $775 an ounce, for earnings before interest, tax, depreciation and amortisation (EBITDA) of $32.7 million. Cashflow from the gold operations over the most recent two quarters has now exceeded the purchase price for the Higginsville and South Kalgoorlie operations. The company also renegotiated and restructured a “very onerous” royalty held by Morgan Stanley over mine production on the Trident “Line of lode” at Higginsville.

The tin operations produced 1,411 tonnes of tin metal in concentrates, at a cash cost of $20,009 a tonne of tin. MLX’s share of EBITDA was $4.03 million. Discovered in 1890, Renison is one of the largest tin mines ever mined in the world, and is still going strong after 45 years. The Total Mineral Resource at Renison now stands at 11.5 million tonnes at a grade of 1.65% tin, making it one of the largest known single mine resources of tin in the world, and reaffirming Renison's status as a world-class tin mine.

Metals X (which was formerly known as Bluestone Tin) commenced underground mining in 2008 and the tin concentrator was commissioned in 2009. The mine produced 6,266 tonnes of tin in 2009-10, 5,000 tonnes in 2011-12 and 7,500 tonnes in 2012-13. Renison still has considerable exploration potential, and the Renison Expansion Project is currently in progress near the mine site: it aims to recover tin from about 19 million tonnes of tailing deposits from the historic ore processing. Tin has had a strong 12 months, rising from US$8.74 a pound to $10.05 at present.

Renison is the cornerstone asset that underpins the MLX strategy of developing a multi-commodity mining house. Cashflow from Renison has been used to grow the business through acquisitions, mainly on the gold. The market likes the story of a developing diversified miner: the stock is up 130% over the past 12 months. But there is still room to move: at the current price of 26.5 cents, MLX is about 17% short of its analysts’ consensus target price, at 32 cents (one analyst has a price target of 51 cents.)

What will drive the share price from here will be combination of increasing production rates at Renison, South Kalgoorlie and Higginsville, some concrete signs that Wingellina is considered economic to proceed, and further progress at Central Murchison, toward expected production in 2015. All told, the future is looking fairly bright at Metals X.

James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au